What finance options are there for buying properties at auction?

Friday, 24 February 2012 04:32

A bridging loan can help you buy at auction

A bridging loan can help you buy at auction

A common misconception is that people who buy properties at auction do so with their own cash reserves.

While this is certainly true of some people, the majority have to borrow some or all of the funds, which leads on to the question: How can you fund an auction property purchase?

The answer is that there are several options on the table.

Bridging finance, mortgages, property development finance and savings are just some of the avenues you can explore.

None of the above options are perfect and your decision will ultimately rest on your personal circumstances and what you hope to achieve from buying an auction property.

For example, if your intention is to buy it and then rent it out, a buy-to-let mortgage is the most obvious avenue to explore.

The buy-to-let market has witnessed significant growth in the last decade or so and with homeownership out of reach for large swathes of the population, there is money to be made as a landlord.

However, mortgage lenders prefer to lend to those who have a track record of successful buy-to-let investments, so you may struggle to obtain finance if this is to be your first time.

If you are keen to buy a derelict property and refurbish it, an auction is a good place to go. Refurbishment finance is taken out by many people with such ambitions, however, you will be subject to credit checks and have to satisfy various criteria before you are approved.

The same is true if you decide to take out a refurbishment mortgage. You may also need a sizeable deposit in order to secure such finance, which puts many people off pursuing it.

Credit checks and irregular income are not issues you need to worry about if you opt for bridging finance.

Bridging loans are by far the most common way of funding property purchases at auctions and there are several reasons for this.

As previously mentioned, a poor credit history can be a major barrier to securing the funding that you need, as can sporadic income.

A bridging loan company is happy to ignore such factors provided you have some form of security against which the loan can be secured. In the majority of cases, this takes the form of a domestic or commercial property.

Another reason why bridging loans are such a popular way of funding auction property purchases is that they can be arranged very quickly.

Provided you complete the application properly and provide all of the information requested of you, the funds can be transferred to your account within ten to 14 days in most cases and as you usually have to settle the balance on an auctioned property within 28 days, speed is of the essence.

There are downsides to bridging loans, however, including high interest rates. As bridging loan companies expose themselves to greater risks when lending money to clients, they need to protect their position, which is why interest rates are higher than those attached to traditional bank loans.

A good course of action is to seek advice on bridging loans by speaking to a professional and explaining to them what your ambitions are.

Property auctions offer you the opportunity to secure some superb deals that you would not be able to find anywhere else and funding should not hold you back.
 

 

Comments

Finance articles

  • Is a bridging loan right for budding entrepreneurs?

    Raising the money you need to start a business can be hard, however, there are alternatives to bank loans. Among them are bridging loans, peer-to-peer lending and borrowing money from friends and family, meaning you need to do plenty of research.

  • Important questions to ask bridging loan companies

    Before taking out a bridging loan, you must understand a number of key points. These include the rate of interest you will be charged, the length of time you have to repay the loan and whether there are any arrangement fees that apply.

  • Why bridging loans are only suitable for short-term funding

    You should only consider bridging finance if your funding needs are temporary. This is because the high rates of interest make bridging finance unsuitable as a long-term solution, so if you have long-term needs, you should look at other options.

  • Banks vs. specialist lenders – which bridging loans are best?

    Both banks and specialist bridging loan companies can provide the bridging finance you need, meaning you need to compare products from a range of providers. You need to look at factors such as interest rates and arrangement fees.

  • Can bridging loans work for those who only need small amounts?

    Some bridging loan companies will lend up to £5 million if you have sufficient equity in your home, however, what if your borrowing needs are more modest? If you need a sum of £10,000, bridging loans can still be an option.

View More Articles

Related stories

Ten expert pension tips on how to plan for your retirement

The key to a comfortable retirement is financial planning

The New Year is a good time to review your pension provisions. Pensions experts McCarthy & Stone run through ten expert tips to help you take control of your future.

How will personal finance trends affect your finances in 2013?

What does 2012 hold in store for your finances?

Myfinances.co.uk presents the second part of our in-depth analysis of how your finances will be affected in 2013 focusing on the likely trends in personal finance in 2013.

Why equity release is a better way to borrow than personal loans

Equity release may be a better way to borrow

If you want an effective way to borrow, there are several ways you can do this. While personal loans are one option, when you think about the advantages on hand with an equity release plan it may be the latter you are most inclined to take out.

Why equity release is a better way to borrow than personal loans

Equity release may be a better way to borrow

If you want an effective way to borrow, there are several ways you can do this. While personal loans are one option, when you think about the advantages on hand with an equity release plan it may be the latter you are most inclined to take out.

Resolve for a better financial year in 2013

Go all inclusive for your next holiday and save money

For many people, making a new year's resolution is a light-hearted attempt at ensuring the following year is better than the last but, if you've struggled financially in 2012, resolving to manage your money better in 2013 could have a far-reaching, positive impact on your life.

The cheapest ways to pay off Christmas debt

Make sure the only way is up for your finances in 2013

If you are dreading your next credit card bill after living it up over Christmas then take control of your finances and find the cheapest method to pay off your debts.

The top ten credit cards for Christmas spending

The best credit cards for Christmas shopping

Make your spending work for you this Christmas – earn cashback, points and rewards for festive spending or choose the card that gives the longest interest-free period.

The top ten easy-access savings accounts for 2012

Easy-access savings - Get your hands on your money when you want

Myfinances.co.uk runs down the top ten easy-access savings deals currently available with or without bonus rates. the Funding for Lending Scheme is reducing rates.

Newsletter sign up

Interests

In addition to the weekly newsletter, which areas of finance would you like to hear from us about:

Tick this box if you would like us to send you promotions from carefully selected third parties.

By signing-up you agree to the terms of use and privacy policy.

sign-up button

Get the latest information on: